Chapter 1: The Current Landscape of Startups

If you’re an entrepreneur who wasn’t deeply unsettled by the recent “leaked” memo from YCombinator urging its startups to prepare for tough times, consider yourself fortunate. However, diving into the subsequent messages from other investors who have jumped on the suddenly cautious bandwagon could leave you feeling anxious.

To summarize the prevailing sentiment: the era of easy funding has come to an end. All the doomsday forecasts and advice in those memos are accurate and entirely justified. The economic downturn—characterized by inflationary pressures, global instability, and the over-investment in projects that perhaps didn’t warrant such financial backing—will affect not just you, but many others crucial to your business’s success.

These warnings aren’t new; they've been evident for quite some time. It seems disingenuous to treat this situation as a monstrous threat to startups when, philosophically, the signs have always been there.

But rather than critique, I aim to offer reassurance. Let’s find a way to regain your composure.

Section 1.1: The Overlooked Signs

It wasn’t rocket science to foresee this shift. Allow me to express my skepticism bluntly: one would have to be quite naïve to be caught off guard by these developments.

1. Startup valuations over the past three to ten years have been justifiable, especially in the early stages.
2. The pandemic-induced growth in specific "stay-at-home" business models would not continue indefinitely.
3. SPACs are an effective method for taking companies public without excessive scrutiny.
4. The Internet remains a dynamic platform where user engagement is prioritized over profitability.

I might also mention NFTs, but I doubt they significantly influence this situation.

Subsection 1.1.1: Guidance for Entrepreneurs

“Did you secure substantial funding based on a shaky concept? If not, keep moving forward.” This encapsulates the core message from this week’s Teaching Startup newsletter, which you’re getting a sneak preview of today.

I’m not suggesting this is a crisis affecting only a select few. As I mentioned earlier, I share concerns about the implications of tightening capital on my own ventures.

What you can control is distinct from what you cannot.

I wholeheartedly concur that if a startup depends solely on external funding or loans to thrive, the coming year will pose significant challenges. After two decades in the startup arena, I understand that I can’t dictate the emotions or choices of investors or customers.

What I can influence is the value my product delivers and how effectively that value is communicated.

If this value underpins my company’s valuation, then I’m in a secure position. The same applies to you.

If your startup’s potential needs to translate into actual revenue, there’s no better moment than now to accelerate that process. However, if your potential relies on unrealistic projections, influencer marketing without measurable results, or any other non-revenue-based metrics, then it’s wise to heed those cautionary memos.

Chapter 2: Moving Forward

If you found this discussion to be insightful or practical, I encourage you to subscribe to my newsletter at joeprocopio.com to stay updated on future posts. It’s concise and to the point.

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